U.S. dollar

  • Historically, on average, the dollar has rallied ahead of the first Fed rate hike and has sold off thereafter. We remain positive on the dollar at least through this first hike, and note that the U.S. economy has less sensitivity to currency strength than its peers.


  • October’s European Central Bank meeting underscored the urgency to fight eurozone deflation and to ensure the euro is kept from strengthening beyond its recent ranges.
  • We now expect a 20 basis point cut to the deposit rate to -0.4% in December, as well as an extension to the quantitative easing program. This should keep a lid on the euro over the near term.

Canadian dollar

  • As expected, the Bank of Canada sounded a dovish tone at its October meeting. It pushed forward by a quarter its timeline for the economy to return to full potential, now forecast for the middle of 2017.
  • Consequently, we believe any interest rate hikes are off the table for the foreseeable future, and we expect the loonie to continue its weakening trend until energy prices rebound, possibly in 2016.

British pound

  • We remain bullish on sterling given the robust labor market and overall economy in the U.K. This appears to be a consensus view and, as such, the pound has struggled during periods of global risk-off behavior. Concerns over the potential for an exit from the European Union have compounded this weakness.
  • Ultimately, we expect the U.K. to raise rates within a few quarters of the first Fed hike. This should provide a tailwind to the currency that should eclipse these concerns.

Japanese yen

  • The yen has behaved as a safe-haven currency over the last few months (see chart). Consequently, investors have trimmed their short positions in the currency recently.
  • We believe this sets the yen up for a renewed period of weakness as positioning is now more-evenly balanced. The likelihood of further monetary stimulus and continued outflows of investment funds from Japan should pressure the yen through the middle of 2016.
Continued strength in global equities may weaken the yen

Source - RBC Wealth Management, Thomson Reuters

Global equity market volatility has supported the yen. This may reverse if stocks rally into year end.

Required disclosures
Research resources